LIBRARY OF CONGRESS 



000-Q03A&7b2 





Class J^kMJLX_ 

Book 



__ - 



Giyrightfl? 



COPYRIGHT DEPOSm 



TRADING IN 
WHEAT 



BY 

ARTHUR PRILL 



The 

MAGAZINE OF WALL STREET 

42 BROADWAY 

NEW YORK 






Copyright 1917 
Ticker Publishing Co. 



AUG 31 1917 

©OI.A470R78 



CONTENTS 

Page 

I. Wheat Classification — Fundamentals of 

the Business 5 

II. Importance of Government and Private 

Reports 13 

III. World Wheat Supplies a Potent Factor 

in Determination of Price Levels 19 

IV. Government Reports — Receipts — Ship- 

ments — Consignments — The Tickers. 23 

V. Regulation of Price Movements — Chi- 
cago's Board of Trade — The Keystone 
of the Grain Business 34 

VI. Profitable Trading Means Keeping Ahead 
of the Crowd — Get Acquainted with 
Your Broker 43 

VII. Orders to Your Broker — Trading Hours 

and Terms — Where Safety Lies 47 

VIII. Orders and Their Execution — Bull Side 

in Wheat Compared with Stocks 53 

IX. Several Types of Orders — How Profits 

Are Computed — Trading Terms 61 

X. Necessity for Definite Campaign Meth- 
ods — "Swings" and How to Use Them. 69 

XL Technical Terms— Scale Trading— Pyra- 
miding and Indemnities 78 

XII. "Spreads" — Forming Judgments of Price 

Movements — Wheat Calendar 87 



I t 

L 




25,000 Sacks of Wheat Awaiting Shipment 
on Nor. Pacific Railroad 



CHAPTER I 

Wheat Classification — Wheat Grading 
— Fundamentals of One of the Most 
Interesting Businesses of the World. 

EVERY year Mankind plays a big game 
with Nature — the stake is the wheat 
crop. 
Look at those sacks pictured at the top of this 
page. You buy five bushels of each crop as bread 
— to live; but your Profit in Wheat depends on 
the brains you put into the business. The factors 
which control grain prices are easy to understand 
and to follow ; when you begin to study them 
they will prove far more interesting than any- 
thing else you ever took up, for they are the 
very life of the world. 

Wheat Classification 

Winter wheat is sown in the Southern belt 
during September and October ; its harvest be- 
gins in Texas as early as the latter part of May. 

Spring wheat is sown in April ; harvest begins 
in the Dakotas about August. 

Market quotations are usually made in May, 
July, September, and December wheat, because 
these are the months in which most of this cereal 
is actually delivered. Cash purchases are made 



6 TRADING IN WHEAT 

with equal facility on every day of the year, but 
for trading in futures the four-month delivery 
system is more convenient. It is, as a rule, also 
cheaper for a trader to sell a current delivery 
and repurchase a future than to hold grain dur- 
ing the interim and pay charges thereon ; that is, 
if you hold 10,000 bushels May wheat about May 
3, and desire to stay in the market for six months 
or more, it will be more profitable to sell your 
May holdings and buy December wheat. Brok- 
erage commissions and price difference will be, 
perhaps, 6 cents a bushel, whereas storage 
charges and insurance would be 10 cents. Of 
course, these figures are subject to constant 
change, and may on rare occasions even be re- 
versed. 

At the beginning of the year, active business 
in futures is for the May and July deliveries. 
About April some traders take up September 
wheat; and about June 1, December wheat re- 
ceives attention. When May has passed, only 
July, September, and December deliveries are in 
favor, and at the same time' deliveries for the 
following May are again taken up. This starts 
a new annual cycle. 

For whatever month you buy wheat, the first 
day of that month is the day on which you must 
be ready to accept delivery of your purchase, 



TRADING IN WHEAT 7 

although it may not be offered until the last day 
of the month. If you do not desire to receive 
the actual wheat (in the form of a warehouse 
receipt) you sell an equal amount in the pit — a 
transaction which you may also have made long 
before the arrival of the delivery month. 

In every trade the day on which delivery is 
made (within limits of the delivery month) is 
optional with the seller; so is the grade of the 
wheat within the limits of grading established by 
the exchange through which you deal 

A trader's Market Position is his decision to 
hold wheat for an upturn of prices, or to sell it 
for a drop, intending in the latter eventually to 
buy back the amount sold, more cheaply and 
therefore at a profit. Should the trader wish to 
maintain his Market Position after the delivery 
date of his commitment arrives, because he be- 
lieves that the trend of prices will continue and 
yield a bigger profit later, he can stay in the mar- 
ket by buying or selling an amount equal to his 
previous trade, but for a future month. 

To "get out of the market/' by selling all hold- 
ings or filling all contracts, is possible at any 
time. 

On the market page of your newspaper various 
kinds of wheat are from time to time spoken of : 

Hard and Soft Wheat is a classification in ac- 
cordance with the firmness and structure of the 



TRADING IN WHEAT 9 

kernel. Bread and Maccaroni Wheat are named 
for their ultimate purpose, Durum being a mac- 
caroni variety grown principally in a belt running 
north and south from the Dakotas through Ne- 
braska to Western Kansas, Oklahoma and Texas. 
Red and White are classifications obviously based 
on color. Turkey is a tough kind of hard winter 
wheat. Barletta, a red variety raised in Argen- 
tina, where wheat is sown June 1 to August 20. 
About 85 per cent, of this crop is cut in Decem- 
ber. 

Each variety yields most plentifully under spe- 
cial conditions of soil and climate. In the United 
States the soft wheat district extends along the 
north Atlantic coast from Maine to the Virginias ; 
a semi-hard type is grown in the region south of 
the Great Lakes ; Kansas and the Dakotas are 
famous for their hard winter and spring crops 
respectively. 

Wheat Grading 

Commercial grading of wheat is accomplished 
by the inspection of shipments as they arrive at 
central markets and by so mixing the different 
grains as to obtain definite standards. For these, 
soundness, plumpness, weight per bushel, and 
freedom from smut or foreign matter is fixed 
within distinct limits. 

Such organizations as the Chicago Board of 



10 



TRADING IN WHEAT 




TRADING IN WHEAT n 

Trade have established what are known as Con- 
tract Grades, which form a standard quality to 
which all grain sold on that market must con- 
form. 

The various grades of wheat deliverable on 
contracts in the Chicago market are : 

(From the CHICAGO GRAIN INSPECTION 
RULES) 

On contracts for wheat for future delivery, the 
tender of higher grade than the one contracted for 
shall be deemed sufficient. All contracts made for 
wheat hereafter, unless otherwise specified, shall be 
understood as for "contract" wheat, and on such 
contracts a tender of No. 1 Red Winter Wheat, No. 2 
Red Winter Wheat, No. 1 Northern Spring Wheat, 
No. 1 Hard Winter Wheat, No. 2 Hard Winter Wheat 
and No. 1 Velvet Chaff Wheat, in such proportions as 
may be convenient to the seller, subject, however, to 
the provisions of Section 5 Rule XXI, shall be deemed 
a valid tender. A variation, however, of one per cent 
in the quantity of grain delivered, and that contracted 
for, shall not vitiate a tender of delivery. Any excess 
or deficit within the above limits shall be settled for 
at the current market upon the day of delivery. 

Inspection Rules of the Illinois Warehouse 
Commission for the Contract Grades are as fol- 
lows : 

No. 1 Red Winter Wheat shall be pure soft Red 
Winter Wheat of either or both light and dark colors, 
sound, sweet, plump, and well cleaned, and weigh not 
less than 60 lbs. to the measured bushel. 

No. 2 Red Winter Wheat shall be soft Red Winter 
Wheat of either or both light and dark colors, sound, 
sweet and clean, shall not contain more than 5 per 



12 TRADING IN WHEAT 

cent of White Winter Wheat and weigh not less than 
58 lbs. to the measured bushel. 

No. 1 Hard Winter Wheat shall include all varieties 
of pure Hard Winter Wheat, sound, plump, dry, sweet 
and well cleaned, and weigh not less than 61 lbs. to 
the measured bushel. 

No. 2 Hard Winter Wheat shall include all varieties 
of Hard Winter Wheat of either or both light and 
dark colors, dry, sound, sweet and clean, and may con- 
tain not more than 25 per cent of soft Red Winter 
Wheat, and weigh not less than 59 lbs. to the meas- 
ured bushel. 

No. 1 Northern Spring Wheat must be Northern 
grown Spring Wheat, sound, clean and of good milling 
quality, and must contain not less than 50 per cent of 
the hard varieties of Spring Wheat, and weigh not less 
than 57y 2 lbs. to the measured bushel. 

If ever we reach a stage of civilization in 

which similar inspection and grading of humans 

is established, that over-plumpness of head which 

leads to demagogic howls for the destruction of 

modern trade organizations will mark its owner 

for the smut-pile. 



CHAPTER II 

Importance of Government and Private 
Reports — Safe Trading Depends Upon 
Knowledge of Fundamental Factors. 

AMERICA'S eminence as the world's food 
storehouse is largely due to the mechan- 
ical ingenuity with which our huge Red 
River Valley and California ranches are worked. 
In these districts up to 20,000 acres are farmed 
under single ownership and the field laborers 
from different parts of the "farm" never see one 
another. It may happen that human hands never 
touch the grain from the time that a mechanical 
seeder drills it into the ground till a thresher, 
self-feeding, with automatic tacker and weigher, 
completes the harvest at a rate of 3,000 bushels 
a day. 

Through elevators and mills to a modern bak- 
ery, machinery again takes the golden kernels 
as they are floured, baked and wrapped in sealed 
packages. When they reach you, your stomach 
gets full advantage of the wheat business, — but 
have you educated your pocketbook to take ad- 
vantage of this stupendous machine-to-mouth 
business ? 

In the Wheat Market poor men have 

13 



14 



TRADING IN WHEAT 



WORLD CROPS 




TRADING IN WHEAT 15 

grown rich and rich men have grown poor. 
The difference was a matter Not of Luck 
but of Brains and. Character. 

Study Government and Private Reports 

Each month the United States Government 
publishes a Report on Acreage, or amount of land 
sown on various crops, on the condition of the 
latter as they stand in the field, on yield or 
amount harvested, and on supplies — in hand, 
stored and in transport. The report for any 
particular month covers the factors most inter- 
esting at that time. 

The Acreage sown to wheat in the United 
States has now passed the fifty-million acre mark 
and is divided into about 17,000,000 acres, or 
one-third sown to Spring Wheat, and 36,000,000 
acres or two-thirds to Winter Wheat. 

During the growth of the crop its probable 
value at the future delivery date is estimated in 
accordance with the weather, moisture and ap- 
parent health of the plant, hence the prices at 
which the unharvested grain is offered are called 
Futures. The foundation which all wheat prices 
strive to approximate is — cost of production on 
the farm, plus freight, insurance, and storage. 
The result of these factors is modified by the 
volume of the world's demand. 

Wheat to be delivered in May, 1914, was in 



16 TRADING IN WHEAT 

June, 1913, estimated worth 97c. a bushel. By 
October, 1913, prospects were for a larger crop 
and the price receded to 87c; when May ar- 
rived, unforeseen developments had so reduced 
the amount of available wheat that it brought as 
high as $1.00. Such changes of outlook are what 
makes successful trading in wheat a matter of 
information and judgment. 

Satisfactory grain investment depends on your 
ability to obtain present facts and to gauge cor- 
rectly their effect on the future. Buying and 
selling wheat intelligently can be based only on 
accurate knowledge of field and market condi- 
tions. 

Safe trading is founded on an understanding 
of price factors and on the intelligent use of a 
first-class information service— one sufficiently 
reliable to guide even the inexperienced investor 
so as to avoid possible missteps. Such a service 
can be found. 

Crop Dangers 
The greatest danger to growing crops lies in 
a long dry spell followed by a few days of con- 
centrated heat. This dries the milk out of the 
plant, "burns" it, and the crop's food values are 
severely damaged or even destroyed in the 
drought-stricken region. At the same time con- 
ditions may be favorable in other parts of the 



TRADING IN WHEAT 
World Shipments 



17 

































:• 




T" 


17111 II 1 






































— 


B 


J_ 


2ai.000.000 BUSHEL' 






































it 




--t-a 


I 










































' 




g 




! 
















































03 


19 





...V 




















































IB 


, 


































rxp( 


)RTS 










V, 


2 


, 


■ 






IMF 


RT 


s 






































„ 


•4JW. 


















































, 




, 


.'■ , 




















































* 




^S 


















































•J 




























" - 


127.000.000 BO 












"» 




.0 


- 
























Hi 


1 
















J, 































■ : 




| 


1 








UJ 




f 


/a 






ooo< 


x> 
























1 








Or 






90 




" 












2 i z 
^4 1 § 1 a 










Z 




i 


fi 


wm 


















1 















7 
























<■ 
c 








- 1 




L 


s 





^1 


■ ' 








_ 




< 




7 

-■:■- ■ 
1 


1 


i— 

i 

* t 


.. ' 


. 


z 

' d 

- 1 


a 
-- m 


..es 
..n 








i 




i 














mM i . 




J_ 










1 






• 


■■ 


- 




.„ 


- 














J 




.,, 





country; another hemisphere may later in the 
season even raise a record crop, so that the initial 
upward tendency of prices is overcome and final 
reactions send quotations in the opposite direc- 
tion. This is the spice of the world's wheat pud- 
ding; proof of your taste in news assimilation 
lies in active trading. 

In winter a sustained mild temperature may 
prove detrimental to proper plant development. 
Frost appearing after the sprouts have obtained 
a good start or during the maturing weeks are 
certain to reduce the yield. 

A late spring is not bad of itself but the grain 
is likely to be correspondingly late to ripen and if 
an early cold snap appears this will nip the un- 
ripe ears in the field. 



18 TRADING IN WHEAT 

Rarely does a single feature of crop news de- 
termine final result. Climatic conditions, which 
in themselves offer no serious threat, may favor 
other harmful developments. Among these are 
Rust — a fungous pest which in some regions 
causes an average annual loss of 10 per cent. ; 
Insects, such as the Green Bug, Hessian Fly, 
Chinch Bug, and Locust, occasionally multiply so 
rapidly as to defy every attempt of the farmer to 
stop their progress through his fields. They may 
travel from Texas to Manitoba, leaving a train 
of withered stalks. 

Hail is a form of damage to crops which often 
receives fat headlines in the newspapers, but its 
radius is usually restricted to an area extremely 
small as compared with the world's acreage in 
wheat. It may form the basis for a temporary 
change of trend in market prices, and in that 
case the early bird picks up the corn before it 
turns. 

Heavy rains are breeders of scarecrows in 
La Salle Street, yet a few days of sunshine will 
in four crises out of five enable such wheat as 
has not been wholly forced into the ground to 
regain an upright position. Particularly if it be 
of a tough variety, the harvest even after very 
severe rainstorms is unlikely to be more than 15 
per cent, short. 



CHAPTER III 

World Wheat Supplies Are a Potent 

Factor in the Determination of 

Price Levels 

AMONG the most important figures on the 
grain page of your newspaper are those 
which report how much wheat is on hand 
in the United States and Canada. This is called 
America's Visible Supply. All wheat stored at 
shipping centers and afloat throughout both 
hemispheres is known as the World's Visible, 
Wheat remaining on the farm and in country 
elevators is considered the Invisible Supply. 

If available stocks of any world commodity, 
as cereals, cotton, or copper, are plentiful and no 
special demand (such as might be founded on 
war needs) looms on the horizon, the trade 
argues that Prices will be low. On the other 
hand, when you note that this year's supply is 
less than which was visible at the same period of 
previous years, and demand appears likely to re- 
main at least normal, buyers, in trying each to 
get what he wants out of a stock which won't 
suffice for all, will bid the price up. 

Visible supply as well as crop conditions for 
the whole world is difficult to judge accurately 

19 



20 



TRADING IN WHEAT 

























































5 


s» 




5 






5 

































2 


0) 




0) 

N 


0) 




0) 




S! 
























o 

CO 




*K 




o 


V 


* 








O 






CV 






s, 


Z> 


^C7 








1 


— 












\ 




V 


^a 
























If) 














X 






\ 












A 


oy 








z 
< 














^v 




























a. 

Q 

Z- 
< 






















\ 










V 


$0 




1- 
< 

LU 

I 

> 
























\ 
















IT) 




in 




in 






\ 


*i 




10 


\ 


\& 




»o 


*? 






K 




10 




Hi 




fc 




y. 




cv 
































\\, 










! 


1^ 


n tf 




W 






































1 




1 

J 

z 






























//' 


y 


np 






















1/ 








/' 








































u 


np 

















O 
10 










to 


/ 


k 




5 
























<o 




/ 


y /■ 








A 


W 




-1 












/ 






* 




/ 
















( 
1 


Z 










/ 










/ 












V 


<b 












/ 










/ 




'. 




















53 


/ 






















v 


°w 














5 


jf 




































^ 




ch 


i 


O 


/■" 


N 






Oj 








V 


*j 








J 






0> 




k 




Q) 
V 




| N 






\ : ' 


















< 
































Y/ 


D/> 


























































GO 




s 




o 




8 













O 

CM 




o 




O 














9 


/* 


V^ 


ng 




/o 


S 


L'O 


/// 


.'// 




Uf 


s 


a-/ 


/?£ 


u 

















































TRADING IN WHEAT 21 

because such countries as Russia and Argentina, 
although contributing important amounts to the 
world's grain supply, offer no complete official 
estimates or statistics. Private organizations can 
cover these huge fields only imperfectly, but their 
work is all that we have on which to base judg- 
ment. 

The most widely known crop information 
bureau in Europe is that of George Broomhall, 
London; he issues a weekly international report 
on conditions, which is widely studied, and makes 
constant special reports to those who arrange for 
the information. His Russian service alone com- 
prises 100 correspondents. 

Nearly all of the large grain brokerage houses 
in Chicago and New York employ individual 
crop experts to study wheat and corn statistics. 
The difficulty encountered by such a method is 
that a single man's scope of action is too limited, 
no matter how able and energetic he may be. The 
only way in which the condition of America's 
millions of acres of wheat can be estimated is by 
means of a widespread system of fieldworkers. 

Some of the larger commission houses in Chi- 
cago and New York are centers of private cor- 
respondence systems covering the United States 
so completely as to amount practically to news- 
paper services. One Chicago firm maintains 45 
branch offices in 40 different cities; 42 of these 



22 TRADING IN WHEAT 

offices have each a private wire direct to the 
firm's central telegraph room in Chicago and re- 
ceive all Broomhall reports a few seconds after 
they reach New York. 

The volume of business passing through this 
firm's central office alone is hinted at by a daily 
average of 2,500 telegraph messages. During a 
busy session as many as 2,000 telephone messages 
have been handled in addition, while boys car- 
ried 400 written communications. Personal let- 
ters sent out during an average day number 300 
and market letters run as high as 5,000 a day. 

This is by no means the very largest firm of 
its class, but its manager says: 

"Every department of this office is at your 
command. My staff is large enough to give 
each person Time to serve you : they are the 
sort who GET you What You Want." 
That is the type of broker a trader should 
choose. 



CHAPTER IV 

Government Reports — Receipts — Ship- 
ments — Consignments — A Speedy Mar- 
ket—The Tickers. 

STATISTICS on Acreage, or amount of 
ground placed under wheat, are valuable 
early in the season. These figures show 
whether the next crop is likely to be larger or 
smaller than that of previous years. The aver- 
age yield of wheat per acre can be calculated at 
17% bushels. When a Government Report is is- 
sued that the crop condition is 90 per cent., this 
means that at the time of the estimate 90 per 
cent, of 17% bushels, or i$y 2 bushels, will be 
the yield per acre, according to available data. 

Transporting the Grain Receipts — Shipments 
— Consignments 
In general, it is the size of a farm which de- 
termines the method of marketing its product. 
Small farmers find it most convenient to sell to 
buyers located within hauling distance. These 
dealers make use of local or Line Elevators (also 
called Country Elevators), built along the rail- 
way lines. More extensive growers can avoid 
paying the small dealers' profit by sending their 
wheat to Commission Men at terminal centers. 

23 



24 TRADING IN WHEAT 

The largest planters keep in constant and direct 
touch with the Board of Trade and with the 
ever-changing prices of the pit ; at favorable mo- 
ments such planters dispose of their crops in 
large quantities. 

A single elevator, now under construction at 
South Chicago, 111., will hold 10,000,000 bushels, 
and will be the largest in the world. Such ca- 
pacity is limited only by acreage and amount of 
concrete-tank erection. 

Nearly all United States spring wheat is 
shipped to "Minneapolis and Country" Mills, 
which designation practically covers the State of 
Minnesota. 25,000,000 bushels a year are milled 
in the Kansas City district ; important mills are 
also located at Buffalo, N. Y., St. Louis, Mo., 
Indianapolis, Ind., and Clarksville, Tenn. The 
"Northwestern Miller," a grain trade journal pub- 
lished at Minneapolis, gives weekly figures of 
flour milled in its section of the country. Such 
statistics permit formation of a judgment as to 
the amount of grain being immediately used. 
When there is a world flour shortage, the large 
mills run to capacity, and their consumption be- 
comes an important factor in the making of 
wheat prices. 

Primary Points are traffic centers toward which 
flows the grain of practically all country ship- 
pers. These points are Chicago, Duluth, Minne- 



TRADING IN WHEAT 25 

apolis, Kansas City, St. Louis, Milwaukee, De- 
troit and Toledo. The aggregate of all grain 
reaching these centers is called Primary Receipts. 
The total volume of grain sent out from their 
tracks and ports is known under the term 
Primary Shipments. 

Grain received at Duluth and Minneapolis 
constitutes Northwestern Receipts. It is on re- 
ceipts at primary shipping centers that judgment 
of Visible Supply is mainly founded during in- 
tervals when no direct estimate is available. 

The Comparison of Receipts for one day with 
those of the same day a year previous is com- 
mon practice in newspaper columns, and thence 
finds its way into the market literature of some 
grain brokers. 

Such comparison of day with day is of little 
value; one day's receipts may be wholly vitiated 
as a basis for comparison by a storm, a strike, a 
holiday or an accident anywhere between ship- 
ping and receiving point. The figures for a 
week are more useful, but these, too, may be 
thrown temporarily out of line; they can be em- 
ployed to advantage when receipts and ship- 
ments for the Whole Season are already known 
and the last change in the situation is wanted. 
Total Receipts to date are the only receipts 
which can be used in gaining a definite idea of 
the wheat supply situation. 



26 TRADING IN WHEAT 

Consignment Houses are those which receive 
wheat from country shippers but do not store it. 
They sell by sample on the grain's arrival. This 
work is, in many instances, handled by one of 
the departments of general brokerage firms. 

A Carload Lot represents about 1,200 bushels 
of wheat, although some of the new cars now 
reaching Duluth and Minneapolis are larger. A 
bushel of wheat weighs approximately 60 
pounds. Carload arrivals consist of about 60 
per cent, of direct purchases and 40 per cent. 
Consignment, i.e., shipment to a commission 
man, who will offer it for sale on the ex- 
change. This, of course, makes no difference to 
the amount of Visible, nor is the effect of con- 
signments noticeable on the quotation board, as 
carload arrivals are usually discounted by sales 
of futures previous to shipment. 

In all calculations to determine the amount of 
grain on hand and the probable volume of com- 
ing demand, a broad view is essential. This is 
what makes Wheat Study the finest exercise for 
an active mind. The more angles of the situa- 
tion you can grasp at the same time, and the 
more logical your deduction from these many 
facts, the greater your advantage over less ver- 
satile brains who attempt to compete with you in 
using the facilities of the Pit. 



TRADING IN WHEAT 



27 



































Y 


EA 


lRS 


[-5 





18 


V0 





00 



0) 





v. 


CM 

v. 




t 










5 


5 




0) 


5 


0) 







0) 


0) 




0) 








































5-f 






























* 


53 


















53, 


54 

4cr 


i t OOO 

es 


" 




* 


52 




AC 


REAGE 










/ 








St 








OF \A 
U. S. 


/h 


EA 






/ 






.0 


SO 






IN 












} 








49 


! 


L 














/ 


v 


y 










48 




\ 














/ 


\ 


/ 








'"s 


47 




\ 


J 


V 


t 








/ 


\ 


/ 








i? 


4e 




\ 


/ 




V 


/ 


V 




1 


\ 


I 










45 




\ 


/ 




J 


/ 


\ 


J 














£ 


44 




V 








? 


/ 






































































76. 


6 








/6 


\ 


'IE 


LD 


=>ER ACR 


E 


£ 


ush 


e/s* 






« 


/S 






























fl3 


/4 






























<*. 


/J 






























4 


/2 





























































28 TRADING IN WHEAT 

Shipping Terms 

Similar care must be exercised in calculating 
the effect of World's Shipments, which include 
all grain sent from exporting to importing coun- 
tries. Quick Shipment implies a maximum 5- 
day interval before the grain is on its way ; 
Prompt Shipment — 10 business days ; Immediate 
Shipment — 3 business days. Grain on the water 
between two ports is On Passage. 

Off Coast is a term applied to grain vessels 
that are lying outside a port of entry waiting 
for instructions to discharge cargo or to con- 
tinue trip. Worked for Export is a phrase im- 
plying that the grain in question is the Cash 
article just sold to an exporter, and is to be sent 
by rail so as to arrive at a harbor for immediate 
loading on board ship. Storage facilities at ocean 
ports are limited. 

The Atlantic Ports, so-called, are Philadelphia, 
Baltimore, New York and Boston. Other im- 
portant shipping points on the same seaboard are 
Norfolk and Newport News. New Orleans is 
the principal Gulf port; Galveston another. The 
Atlantic ports and New Orleans are sometimes 
spoken of as the Five Ports. Grain is said to be 
Afloat when it is in a hold but has not yet reached 
its destination. 

Clearances are the total shipments for a given 



TRADING IN WHEAT 29 

date, and generally include only Lake, Atlantic 
and Gulf shipments. Figures for Pacific Coast 
clearances are given weekly by Bradstreet, the 
commercial agency. 

On the Canal — is grain passing through the 
Erie Canal ; a Boat Load is the cargo of a canal 
boat, and is calculated on a basis of 8,000 
bushels. C. I. F. is the abbreviation for Charges, 
Insurance and Freight; F. O. B. stands for Free 
On Board. 

The Atlantic Coast wheat Export business is 
partly in the hands of seaboard firms which make 
a specialty of bulk shipments. They are prin- 
cipally located at Baltimore, Philadelphia and 
New York. Direct sales for foreign account are 
also made in large volume from Chicago, Kansas 
City, Winnipeg, Duluth and Galveston. 

One quality is common to all of the wheat 
business: whether your deal be large or small, 
and no matter what influences are brought to 
bear on it by man or nature — the grain you raise 
or buy possesses an indestructible food value for 
which all mankind hungers with a call stronger 
than that of avarice, of patriotism or of religion. 
If you hold Wheat, sooner or later the world 
must come to You. 

The Market With a Speed Record 

Wheat value is a telegraphic spark that breaks 



30 TRADING IN WHEAT 

from the Danube to Buenos Ayres, from the 
docks of Liverpool to our own furthest Western 
Empire, but all flashes cross on the floor of the 
CHICAGO BOARD OF TRADE. The owner 
of wheat still on the stalk or in an elevator, in 
a floating hold or only in the form of a contract 
for future delivery, can sell his property on this 
market at the edge of Lake Michigan in as many 
seconds as it takes him to offer his goods plus 
one. 

It has required the experience of two genera- 
tions to perfect the Board trading machinery for 
the handling of both Futures and Cash wheat. 

Cash Sales, of course, imply exchange only of 
warehouse receipts ; a million sacks of wheat 
could no more be hauled from office to office in 
LaSalle Street than a parcel of real estate can be 
actually transferred, though it be sold and resold 
half a dozen times in a day. Later, within the 
time limit of the contract of sale, the grain will 
be shipped, unless by reason of reselling or other 
change of intention the wheat is left in the ele- 
vator and storage is paid. 

A membership on the Board of Trade carries 
an advantage which makes it desirable to very 
active traders, although they do not care to 
maintain an office or do any commission or brok- 
erage business. To a member who trades through 



TRADING IN WHEAT 31 

another member's office, the commission is only 
$3.75 per 5,000 bushels of grain ; when a member 
does his own buying and selling in the pit but 
clears through another member, that is, he uses 
another's organization to finance and complete 
the transaction, the commission is $2.75 per 5,000 
bushels, and if he closes the latter type of trade 
within 10 calendar days, the commission is $1.25 
per 5,000 bushels. This compares with a $7.50 
rate to non-members using a broker. A Gov- 
ernment tax of 1 cent per $100 value is imposed 
on all trades. 

The Tickers 

Instantaneous transmission of news and prices 
is accomplished by the telegraphic Ticker system. 
These machines are of two main types ; the larger 
is the News Ticker, which prints news in pithy 
paragraphs, much like those of the Gossip column 
on a newspaper market page. The news ticker 
uses a long sheet of paper 5^ inches wide, which 
unwinds from a roll as needed. Words are 
printed, letter by letter from a revolving wheel 
similar to that of a child's typewriter. 

The other and more constantly used machine 
is the Quotation Ticker which gives the price of 
each sale as made in the pit. For this purpose a 
narrow strip of paper (11-16 inch wide) is used, 



32 



TRADING IN WHEAT 



GRAIN MARKET OPENING- 
WHEAT STARTED OUT LOWER ON THE CABLES AND 
LARGE RECEIPTS WITH FAIR SELLING LED 
BY BARTLETT FRAXI ER AND SCATTERED TRADERS AND 
COMMISSION HOUSES- AT DECLINE THE BUYING HAS 
feEEN GOOD, 

WEATHER MAP- 
CANADIAN NORTHWEST - CLOUOV TEMP 6 BELOW TO 

16 ABOVE- WINNIPEG 1 4- 

ILLINOIS WHEAT- 
WE ARE HAVING LITTLE TROUBLE WITH OUR DOWN 

STATE WIRES ON ACCOUNT OF THE STORM SAYS~ 
BARTLETT FRAZI ER COMPANY-SL£ET ON WINTER WHEAT 
JUST NOW IS NOT PARTICULARLY DESIRABLE AS THE 
PLANT HAS NOT HAD A VIGOROUS START, 



FOREIGN CROP CONDITIONS- 
ARGENTINE - WEATHER CONTINUES FAVORABLE FOR 
HARVESTING AND MOVEMENT OF CORN— OATS ARR 
ARRIVING TO PORTS FOR SH IPnENT-LOCUST HOPPERS 

ARE APPEARING AND FZARS APE EXPRESSED THAT 
THESE WILL ENDANGER CORN 



TRADING IN WHEAT 33 

quotations appearing in the form of figures and 
abbreviations. 

Similar machines are used to transmit stock 
market news and quotations. A central operator 
transmits these messages to all tickers on the cir- 
cuit at the same instant. New York and Chicago 
offices are on an equal footing in regard to time 
of receiving this news service. 



CHAPTER V 

Regulation of Price Movements — Chi- 
cago's Board of Trade — The Keystone 
of the Grain Business — Wheat "Cor- 
ners/' 

ANY buyer, in Calcutta or Berlin, whether 
he wants a thousand bushels or a million, 
needs only send his order to the Chicago 
Board of Trade "at the Market" and it is in- 
stantly filled. Such orders in infinite variety and 
number are placed and taken up in the Chicago 
Pit every business day, yet the result is as easy 
to follow as a child's game with blocks ; the 
figures go up and — fall down. The price of the 
grain may rise slowly or swiftly but sooner or 
later it again falls. You who deal in wheat need 
only watch that the price accurately measures 
the farmer's success in meeting the world's cry 
for bread. 

These countless offers and sales of wheat, if 
left to the haphazard discretion of scattered 
buyers and sellers would vary widely in accord- 
ance with location and individual needs; no one 
could arrive at a sound estimate of supply, de- 
mand or value. Hence the Board of Trade was 
organized to centralize the business within the 

34 






TRADING IN WHEAT 35 

smallest possible radius — a Pit 37 feet in diameter 
and 3 feet deep. Steps lead from the circum- 
ference down toward the center and on these 
steps the wheat brokers stand calling and signal- 
ling, offering purchases to one another. 

The active membership of the exchange is 
composed largely of Commission Men who act 
simply as agents for anyone who holds either 
actual grain or contracts good for future deliv- 
ery and wants to sell. Similarly they will buy 
for anyone who wishes to lay in a supply. 

In no transaction of futures on the Board of 
Trade does your profit or loss make any financial 
difference to the broker. When he handles grain 
for immediate delivery for cash, it is to his in- 
terest to get the lowest obtainable price for you 
when you buy, and the highest price when you 
sell, because you will naturally be watching all 
other sales at the time. The broker who acts for 
you once can expect your custom for subsequent 
transactions only if his service satisfies you. 

Your Account With Your Broker 
At the close of every business day a Confirma- 
tion Slip is sent to each trader; it specifies each 
transaction made. Purchases are usually noted 
on a black slip, sales on a red slip. The precau- 
tion of a difference in colors (though these may 
vary in different commission houses) is taken 



36 TRADING IN WHEAT 

because it has been found by experience that 
traders easily mistake sales for purchases, and 
vice versa. Hence these are kept on separate 



CONTINENTAL AND COMMERCIAL BANK BUILDINO 

Dm* An 

la accordance .with your ins troc&na, we nave tab day 
BOUGHT for your account and risk. 



L 



"Alpiirt l w u duUi^b.bM« a ^kn»faa^Ml l «idii*ii4 K rwUiiiid 

ad «U tf>= madMHtUl W he bS 4«»o. 



CONFIRMATION SLIP 
sheets for the first notification, but several pur- 
chases may appear on one Purchase Confirma- 
tion Slip, or several sales on one Sales Confirma- 



TRADING IN WHEAT 37 

tion Slip. The sample shows that John Smith on 
January 7, 1916, bought 10,000 bushels May 
wheat at $1.20 a bushel, and that the trade was 
made with the broker Brown, the latter acting 
for a client in a manner similar to that by which 
Blank & Blank negotiated for Smith. 

When a trade is closed out, that is, when a 
quantity of a grain (wheat, corn or oats) is sold 
in equal amount to a previous purchase of the 
same grain, or when a purchase evens out an 
earlier short sale, an Account Purchase and Sale 
Slip (usually called P & S) is sent to the trader 
for each completed transaction. He may receive 
several P & S slips in the same mail, and also 
the Confirmation slips to correspond if such 
trades were of the same date. 

Herewith is shown the record of a purchase 
of Ten Thousand bushels May wheat at $1.20 a 
bushel and subsequent sale of the same at $1.21 
a bushel. The broker's commission amounts to 
$15 for the Round Trade, the latter being a term 
covering the combined purchase and sale of the 
same amount of the same grain on the same ex- 
change. A second deduction is $1.21 — a Federal 
Tax of one cent per $100 value of transaction; 
$83.79 i s ^e profit on the deal in question. 

At the beginning of each month the trader re- 
ceives a Statement of all the previous month's 
transactions. On the right-hand side of the 



38 



TRADING IN WHEAT 



specimen, the upper figure, $83.79, corresponds 
to the profit on the 10 May wheat trade previ- 
ously noted as per P & S. On the following day 
a trade was closed in 5,000 bushels May wheat 
— top figures left side of Statement: resulting 
loss, $29.75. Throughout the statement the last 
"000" are omitted in the amounts of grain han- 



<*—&&J CHICAGO, Am~xs.JZ , 19 j e 
ACCOOT PtmCHASE A>0 8A1.8 OP LC, ««o^ ?*Wy 7^4£e«4£ 

FOR ACCOCTTT AKD RISK OP JfrrAs**/ j^+9%*sC£' 

BOUGHT SOLD 


..t. 


•"«» 


r..c.| .*..„ 


».T. 


.■««. 


,.,.. 


.-oc 


J 


•7 












/O Tftf-r 


• fV 


* 


JJ, 












'1 1 ' .,_ 












if 








_2Lj^ 


1 


/ 2/ 




















fA*'^ 


I 


* z 7f 






















| 
























L40it 


ot 










* 


■H- 


* 








1 == T 














-r 




m&M 


.« 




1 
























, 1 














p 




to Yoca,Clr QD-ZZ 



ACCOUNT— PURCHASE AND SALE 

died, and only the first letter of the month (as 
"J' for July) is used. "W" stands for wheat, 
"C" for corn, "O" for oats. The entry under 
date of Jan. 28 shows that John Smith drew a 
thousand dollars in cash. 

This is an account which has been running for 
some time ; it may be presumed that the May and 



TRADING IN WHEAT 



39 



July wheat noted as closed out during January 
already showed a satisfactory profit at the be- 
ginning of the month. A new account would 
require a larger margin. 

The Chicago Board of Trade — Keystone of 
the Grain Business 
The regulations of the Chicago Board of Trade 
cover every feature of the grain business for the 




I ACCOUNT WITH 



^ 



2& C£*^4l 



s .<• 7*1^7*- 



Q-eL&a^L^tJt^ 



ta ef i 



4-iL^ 



Zi 



fGLuStdo fa gfc 



so 7n W 



/C /&C&tr7 



■-P*- 



& *d<*< *V<Ar 




BROKERS STATEMENT 
best interest of all concerned. The most obvious 
advantage of the Exchange is the financial re- 
sponsibility of its members ; when you buy grain 
from or through them you do not risk finding a 
chattel mortgage on it. Uniformity of business 
methods is imposed and adjustment of disputes 
facilitated. The result is close competition and 



40 TRADING IN WHEAT 

excellent service to customers. On no other 
commodities is the middleman's profit scaled 
down to so narrow a margin as on grain and 
cotton. 

A peculiar advantage of the grain business is 
that its Warehouse Receipts are better collateral 
even than real estate. This is due to the Board 
of Trade regulation which requires elevators to 
file a bond of 15 cents per bushel of their ca- 
pacity for compliance with all rules. Such ad- 
dition to security of loans above the market 
value of the grain makes these receipts highly 
desirable commercial paper. 

The Board of Trade not only gathers crop in- 
formation from all the world's fields and trading 
centers, but distributes it, as well as resulting 
prices, freely to other trading organizations, to 
newspapers, brokers and anyone interested, so 
that every investor and grower can obtain the 
fundamental facts of his position. 

This enables the farmer who is confronted by 
loss in his own fields to buy intelligently and 
speedily from the product of other regions. 
When he has harvested and needs cash he can 
get it immediately because the crop can be stored, 
sold in the form of futures, later distributed at 
the railroad's and banker's convenience, and made 
into bread when the cities want it. 

Were it not for the possibility of such Future 



TRADING IN WHEAT 41 

delivery by means of the Board of Trade system, 
we would be confronted by the impossible prob- 
lem of buying and distributing a whole year's 
breadstuff s in a few harvest months. If the 
banker could not look up future quotations he 
would have no accurate basis on which to lend 
money to those farmers who need money but are 
not in position to sell ; the banker would be com- 
pelled to ask much greater security, a situation 
which implies that the farmer would get less 
money. Similarly the grain elevators would have 
to change the nature of their business from that 
of storage concerns to one of merchandising. To 
protect themselves against loss the present small 
cost of storage would necessarily be raised to a 
figure meeting any possible adverse fluctuation. 

When under the present favorable system an 
elevator company buys grain which it cannot 
immediately sell for actual delivery, it may order 
the same amount sold in the Chicago pit for de- 
livery several months away. Should the price 
now fall, the amount thereby lost by the elevator 
concern would be equalized by the grain on the 
future delivery sale. This is called Hedging. 

Thus, if at the time of the original trade be- 
tween farmer and elevator, wheat was selling at 
97 cents on the Chicago Exchange, that meant 
to the buyer that he could immediately sell wheat 
at that price. On this basis he would then deal 



42 TRADING IN WHEAT 

with the farmer, the latter receiving 97 cents 
minus freight, insurance, etc. — charges which 
are essentials in every business — and minus also 
the cost of storage, the latter being the item for 
which elevator concerns exist and compete. 
About one cent goes to the Board of Trade mem- 
ber who attends to all the details of the sale. 

The Elevator wires a selling order to Chicago 
and contracts to deliver at a future date, suiting 
his convenience, a quantity of wheat equal to 
that which he bought. He gets approximately 
the same price — 97 cents. Now he has his ex- 
penses and storage profit covered by the differ- 
ence between his buying figure, 83, and the Chi- 
cago price, 97. 



CHAPTER VI 

Profitable Trading Means Keeping 
Ahead of the Crowd — Get Acquainted 
With Your Broker — Value of Correct 
Information. 

THE American milling trade is depending 
for the present ease of its transactions on 
the perfection of Exchange trading meth- 
ods. 

Millers must suit the convenience of customers 
by contracting to sell and deliver flour at differ- 
ent future intervals, although the miller but 
rarely has storage room for many month's sup- 
ply of wheat. The capacity of the mill's rolls, 
too, is limited to average actual requirements 
from day to day ; hence the mill has no recourse 
except to buy Futures which are deliverable at 
or beyond the required dates on which present 
flour prices can be calculated. 

Maintenance of prices near normal levels is 
materially aided by the constant appearance of 
thousands of small speculative orders in the pit. 
When wheat is offered at steadily falling quota- 
tions, people with spare funds who have learned 
grain, reason that an upturn must come sooner 
or later as certainly as water returns to its level. 

43 



44 TRADING IN WHEAT 

They buy for future delivery, and if their action 
was well timed, are in position to sell at a profit 
by the time or before their contract is due. When 
enthusiasm has carried prices above the line war- 
ranted by facts, the speculator sells wheat, and as 
soon as equilibrium between hopes and facts is 
re-established, the amount may be bought in at 
less than the purchase price. This usually hap- 
pens long before the "future" sold falls due. 
The difference, less a small commission for the 
broker's service, is net profit. Futures are not 
weighted with transportation or any other 
charges. 

All human laws are occasionally inadequate 
or are boldly defied. The police force doesn't 
need an annual parade to demonstrate its exist- 
ence, but few of us ever see a baker and recog- 
nize him as such. It remains, however, that 
harmful over-speculation is considerably rarer 
than murder, divorce or the every-day, grinding 
misery, that seldom reaches the top of a news- 
paper column. 

Wheat Corners are abnormally strong move- 
ments due to heavy purchases by an individual or 
a clique. Spectacular corners of a manipulative 
character are now rendered impracticable by 
Board of Trade rules, but natural corners may 
develop from such conditions as drought or war. 

What speculation does not fix prices ; at its 



TRADING IN WHEAT 45 

best it is an investment based on reasoning as to 
future values. If the reasoning proves incorrect 
the speculator is the one who suffers, for he 
loses his investment. Crop facts, and correct 
reasoning founded upon them, may be gained by 
the use of an efficient advisory service. 

Manipulation is never long effective on the 
market as a whole, and well informed individuals 
may not only avoid being caught in its mislead- 
ing trend but can even take advantage of it by 
anticipating the reaction which is certain to suc- 
ceed. 

Essential — Correct information. 

Keep in close touch with the Chicago Board of 
Trade through some member of long standing 
and wide reputation, and your interests are likely 
to be cared for with a loyalty and efficiency 
whose proof lies not in words but in the check 
you can draw against your account. 

The finest example of commercial stability and 
courage which this generation has seen was of- 
fered by the Chicago Board of Trade when the 
war storm broke in 1914 and finance found that 
her credit foundation had sunk out of sight. All 
exchanges other than grain closed throughout the 
world, but the hunger- value of wheat kept Chi- 
cago's doors open and we have ever since been 
feeding the battle heroes and their orphans at 
an average rate of a million bushels a day. 



46 TRADING IN WHEAT 

This business did more than anything else to 
preserve American commerce from demoraliza- 
tion and was the basis for the country's subse- 
quent prosperity. 

A good broker's first desire when a new comer 
writes to the office is to learn something of that 
customer's personality. No two traders think 
quite alike, no two are in exactly the same finan- 
cial position. As a doctor makes slight changes 
in treatment for different patients though they 
have the same ailment, so a conscientious broker 
strives to make each individual trader's needs and 
the varied possibilities of the market situation 
meet at points of profit. The longer, the more 
frequent and the more personal your letters to 
him are, the better he likes it ; he considers him- 
self your partner and can work to best advantage 
when he has such a partner's full co-operation. 



CHAPTER VII 

Orders to Your Broker — Trading Hours 
and Trading Terms — Where Safety 
Lies. 

THE correspondence system of a first-class 
commission house fills your exact need 
whether you live in a suburb of Chicago 
or at Los Angeles. Each letter directly answers 
your personal needs while inquiries of a general 
nature are met by printed matter usually enclosed 
in the same envelope. 

At no time does a good financial adviser (if of 
the very highest type) try to save you from 
Thinking. While he gives directions for trading 
in every crisis he explains Why and expects you 
to study that Why. Questions on subsequent re- 
sults are welcomed for these show that the trader 
is looking for the right road to WHEAT SUC- 
CESS. 

There is only one road — that of Work, until 
every cause of past price movements is under- 
stood; then you can forecast the coming trend, 
and trade with complete satisfaction. 

Most of the larger brokerage firms issue Daily 
Letters on the market and crop situation, supple- 
mented by a Weekly Review of important devel- 

47 



48 TRADING IN WHEAT 

opments. This service is usually supplemented 
by pamphlets or booklets of statistics either orig- 
inal with the house or turned out by some inde- 
pendent compiler who, for a consideration, prints 
the name of each broker on the cover of copies 
taken by the latter. The broker distributes these 
free of charge, on request. The "Red Book" by 
Howard, Bartels & Co., is such a compilation 
of grain and provision trade statistics, deserving 
careful study. The "Investor's Pocket Manual," 
published by The Financial Press, gives a com- 
prehensive view of Stock and Bond history with 
some figures on the Grain and Cotton business. 

Suit Your Needs 

It is well to trade through that house whose 
information best suits your needs. The average 
market letter is a mere rehash of such news as 
has appeared during the day on the tickers or 
has been gossiped about the writer's board room. 
You will easily note the different tone if you 
read one of the few grain-market letters whose 
writer has brought brains to bear on the subject. 
Even if the latter type is at first hard to under- 
stand, it will pay any novice to study it, because 
what he doesn't know is just what he should 
know. 

A Private Wire House is one which has the 
use of an individual wire service to different 



TRADING IN WHEAT 49 

sections of the country where its branch offices 
or correspondents handle local business and 
gather trade information. The latter is immedi- 
ately wired to the main office and thence redis- 
tributed to all other branches. Such a service is 
of value to traders inasmuch as it keeps them in 
immediate touch with developments throughout 
the grain belt — assuming that the house is one 
of those possessing widespread connections. The 
grain trader at a distance from Chicago, if within 
telephonic reach of any branch office maintained 
by such a firm also has the advantage of immedi- 
ate transmission of orders and of reports on 
their execution to and from the Pit. 

Correct Information 

When the thing happens — not after it's over, 
is a requisite of successful wheat investment. 

Mere changes of public sentiment should never 
be allowed to sway your commitments except 
when that sentiment promises such development 
of strength as to overpower temporarily the 
trend warranted by Facts. In the long run Con- 
ditions — not headlines — govern prices. 

Some speculator may discover three green bugs 
in Texas and think he sees a green plague 
spreading from our southern states to Manitoba : 
his vision gets into the newspapers. 

In such a case, reason on the facts as shown 



50 TRADING IN WHEAT 

by a reliable grain news service and your original 
position will eventually prove correct. Situations 
of this kind are not infrequent, and accentuate 
the necessity of selecting your broker with the 
greatest care ; his personal friendship is of little 
value if not backed by adequate organization. 

Having decided that the market is a "buy" or 
a "sale," write, wire, phone or tell your order 
immediatly to your broker. Hesitation implies 
a lapse of time during which conditions may 
change: then your previously formed judgment 
becomes worthless. 

In the ideal "Customer's Room" whether at a 
main or branch office, its manager is always ready 
to meet you, to answer your questions or to take 
your commands. His welcome is sincere, for his 
firm's business is managed in a generous spirit. 



TRADING IN WHEAT 



Si 



Dec 13 1915 



M 6c M Mill Co 
Tenn 



GenVlemen - 

I have seen some specimens of Iowa 
corn thai are quite surprising-very much better 
than expected 

You can ei^hej" buy this May corn on a lc scale 
down, or take the selling side if there is a 
further advance 

For instance . if you can get short some May corn 
at 73c and some at 744. I believe you will be 
im line for a good profit 

Your attitude in corn has changed of late — and 
you seem to be bullish J too am bullish on 
breaks but when it comes to buying May corn way 
up in the seventies I think the situation calls 
for some conservatism 

The same in wheat — The thing to do in wneat is 
to sell 5,000 on a 4c scale up or buy 5»000 on 
a 3 to 4c scale down — a lOo change with a 10c 
reaction would result very profitably If you 
want to make this 10.000 lots — by all means 
make it 10,000 

Yours Truly 

BLANK & CO. 



52 TRADING IN WHEAT 







i (4 








« c ° 








5 ^ © 




, 




** > <D • • 

© 53 o ^ 5 




c 






en'- 1 






rH 














DO 
H 




fc * 3 g w 


o 


O 




2 ce *$ 8. 


H 
rH 
•H 




P 




2 






*~£5*S 


2 


H 






*<* 


H 

M 



to 




h5 
h 

(0 


3 
o 

o 




2 O 2 w ^ 


14 

o 


• 


1 






o 
o 


G 






a) 


*•• JS ou ^ v* 




08 


a 


O ^ H U o 






0) 


^ CO oj -P <D 




J* 


H 


W PU43 <Q 




a 


4» 


© c -p a -p o> 




3 


G 


tjiJCooh 




H 


0> 


a3 1) Q) L, r! aJ 




PQ 


e 


a > a a & co 





CHAPTER VIII 

Orders and Their Execution — Trading 
Terms — Bull Side in Wheat Compared 
With Stocks. 



YOUR orders are best expressed when they 
are short and distinct, as — 
"Buy 5,000 bu. May Wheat," or 
"Sell 10,000 bu. Dec. Corn." 
The Unit of Trading or Full Lot* of wheat, 
corn or oats is 5,000 bushels ; you can deal also 
in 1,000 bu. lots — the Minimum Order. 

Amounts from 1,000 to, but not including, 
5,000 bu. are Job Lots. 

When sent by mail the order should be placed 
at the beginning of the letter so that it may be 
filled At Once (market permitting). 

Trading Hours 

Chicago Board of Trade business hours are 
from 9:30 A. M. to 1 115 P. M., Monday to Fri- 
day, inclusive, and 9:30 A. M. to 12 noon on 
Saturday. 

Wire Orders received after the close of the 
market will not be executed and are cancelled 
unless marked "open" or "to close." 

Your Wires to buy and sell Full Lots (5,000 



* Also called "Standard" order. 



53 



54 TRADING IN WHEAT 

bushels and upward) are usually paid for by your 
broker. Wires on Job Lots (less than 5,000 bu.) 
should be prepaid. If your trading is in suffici- 
ent volume to warrant the then comparatively 
small cost, it is well to have telegraphic informa- 
tion sent you on important occasions, at your ex- 
pense. 

A private, telegraphic Code Book is furnished 
by some firms ; this permits frequent high-speed 
communication with privacy and at low cost. If 
an active out-of-town trader desires, an exclusive 
private cipher can be arranged for with his 
broker. The Robinson Telegraphic Code is ob- 
tainable at all good stationery and book stores 
and will give you cheap service for general busi- 
ness as well as financial messages. Your broker 
is Not responsible for mistakes made by a public 
telegraphic company. 

Distant customers are immediately notified by 
the commission house on the execution of any 
trade ; this is done by wire or mail, or both, ac- 
cording to circumstances. A full account of 
each day's transactions is mailed to the trader 
the same evening. 

The Long Distance Telephone is a very satis- 
factory medium for communicating orders and 
information. Quotations and news can in this 
way be obtained from all branch offices of a 



TRADING IN WHEAT 55 

Private Wire house with ease and certainty of 
instantaneous execution. 

Trading Terms 

Whether your order is placed by wire or other- 
wise, it must be remembered that small Job Lots 
are more difficult to place at a given price than 
the Standard Order* 5,000 bushels, and its mul- 
tiples. The job lot trade usually has to pay a 
difference of from % to % cent from pit prices 
for the accommodation. This is beyond control 
of your broker, who serves you to the best of his 
ability under all circumstances. 

You can make a contract to Sell wheat or 
stocks even if you have none on hand; this is 
called a Short Sale. The practice of Selling 
Short on exchanges has been much misunder- 
stood ; it has been misinterpreted as "selling what 
you don't possess/' but is as essential an item of 
the wheat business as is to the automobile busi- 
ness any contract which Mr. Ford may make to 
deliver 1,000 cars before they are built. Ford 
may not even have the raw material on hand, 
but he knows where to get it, has the capital and 
organization, and therefore feels at liberty to 
make a profitable contract for a date far ahead. 
He is dealing in Futures. 

Similarly the wheat trader, knowing where and 
how to get grain whenever he may want it, sells 

*Also called "Full Lot." 



56 TRADING IN WHEAT 

for future delivery. He may buy-in this wheat 
contract at a favorable opportunity before it is 
due, without caring who raised or will raise the 
actual grain, just as a street-paving contractor 
often sublets to another firm a job which he 
took for Future completion without even intend- 
ing to do it himself. The farmer may in the 
spring make a "Future" contract to sell the grain 
which he won't harvest till autumn; you can 
contract to receive that future harvest at such 
price as the farmer or his representative will 
accept. 

When you Buy wheat or stocks you are Long 
of the market and hope for a Rise of prices so 
that you may sell at a profit; you are then a 
Bull.. If you Sell without a previous purchase 
you are Short and you naturally hope that prices 
will drop to a lower level so that you may buy-in 
your contract for even less than your selling 
price and pocket the difference, then you are a 
Bear. 

It is easy to remember the alignment of Bull 
and Bear if you recollect that a bull will Raise 
whatever he gets on his horns, while a bear 
Pulls things Down. 

A trader's alignment as Bull or Bear is his 
Market Position; to change from one position to 
the other is to Switch. It is essential that the 
trader learn how to deal on both sides of the 






TRADING IN WHEAT 57 

market, because downward price movements are 
in the aggregate as large as upward movements ; 
to restrict one's self to either would be to lose 
half one's market. 

The Short side requires the more careful at- 
tention, because the time within which the 
Short must make good his contract is limited. 
When you are Long of wheat within the proper 
limits of your capital, you can hold on indefi- 
nitely till prices meet your needs. The Short, on 
the contrary, is exposed to a possible Squeeze or 
Drive — a manipulative effort of the Bulls to 
force prices up to a point higher than Shorts can 
margin their accounts. The Shorts are then 
compelled to buy-in their contracts at top prices. 

Safety lies in the use of Stop Loss orders. It 
is never advisable for an ordinary trader to sell 
the Current Delivery Short, because it is not 
practicable to estimate stocks of grain on hand 
accurately and you may happen to get much bad 
company — that is, other traders, who, without 
fully knowing the situation, sell short. In that 
case, the amount of available grain may be less 
than the amount sold short and the price would 
inevitably mount. Or, though supplies be equal 
to sales, the ascertainable surplus is small, then 
the market can still be called Oversold, because 
traders who deal in large quantities, becoming 
aware of the numerous short sales, will buy up 



58 TRADING IN WHEAT 

all of the small surplus and bid for more till 
the price mounts beyond the level to which the 
shorts can margin their previous sales. The short 
in this case also has no choice but to buy at the 
top figure. 

An Overbought market is one in which traders 
have made purchases in greater volume and at 
higher prices than the situation warrants. A re- 
turn to normal levels is then only a question of 
time unless some new development appears, 
changing former fundamentals. 



BLANK & CO. 

Time JhOSTTUVATE WIRES Dece mber 9, 1915 



Minneapolis. 

Farmers are only selling freely on bulges. 
Decided falling off in hedging by country eleva_ 
tors. Country stocks are large. Terminal re- 
ceipts will run about same as present. 



TRADING IN WHEAT 59 

An essential difference between the wheat 
market and the stock market is that good news 
about a stock company is Bullish; big earnings 
tend to make a company's securities rise in price, 
while news of losses or of calamity have a bear 
effect on the stock or bond and tend to drive 
its price down. In grain, on the contrary, a 
good, big crop means that there may be more 
wheat offered than buyers want, in which case 
farmers will try to undersell one another, and 
the price drops. The tendency of good weather 
or big receipts or any news favorable to the 
fields and bins, is Bearish. When pests or frosts 
strike the wheat districts and the crop threatens 
to be damaged, or to fail, the probable result will 
be that the amount of grain harvested will not 
be sufficient to meet the demands of buyers. The 
latter would then compete for the remaining 
wheat at rising prices. Therefore, crop damage, 
or such news as lack of transportation or unex- 
pected large demand, acts as Bull news. 

Orders 

A Limit Order is one to trade at a fixed price, 
at or before a fixed date, as — 

"Buy 5,000 bu. July weat at $1.21 ; good to- 
day only," or good till a given date. 

When no price is mentioned and you say, 
"Buy 5,000 bu. July wheat," the order is con- 



60 TRADING IN WHEAT 

sidered as placed for immediate execution At 
the Market, and is filled at the best figure imme- 
diately obtainable in the pit. 

You may instruct your broker to buy at a 
price below the current quotation, or to sell at a 
figure above this quotation. 



CHAPTER IX 

The Several Types of Orders — How 
Profits Are Computed — Trading Terms. 

EVERY customer receives a list of his open 
orders each week. 
If you wish to rescind an order, repeat 
it, prefixing the words "Cancel order to" — buy 
or sell as it happened to be. Your Cancellation 
goes into effect instantly. 

A trader should keep accurate record of his 
transactions and be careful to cancel old open 
orders which may conflict with new ones. 

"At the market" is the best method of giv- 
ing ordinary orders. To try catching an extra 
fraction, or even a cent, when you have once 
made up your mind that the trend is away from 
present levels, is not only a waste of time, but 
exposes you to risk of Missing Your Market 

For example: 

You see wheat quoted at 8i^c. ; you find 
world-supplies low, and believe 85 to 90c. will 
soon be bid, but would like to knock that ^ off 
the purchase figure, and order your broker to 
buy at 81c. 

Now a little dip may bring the price to 8i^4c. 
— quite close to your buying order, yet not al- 

61 



62 TRADING IN WHEAT 

lowing it to be filled. Or the rise which you 
expect may be foreseen by other buyers only 
thirty seconds later than by yourself — wheat 
then goes straight up, reaches the 85c. level 
which you confidently foresaw, passes the 90c. 
mark — but you have nothing, because your buy- 
ing limit, 81 c v was never touched. 

Order to Close, — To close a trade is to order 
a sale equal to a previous purchase, or to order 
a purchase equal to a previous sale. The first 
trade is thereby evened out, and the profit or 
loss between the price levels of the two trades 
is placed to your account. 

It is good practice to place the words "to 
close" on all such orders ; this will prevent pos- 
sible mistakes of a type which might prove 
costly. Few traders possess an infallible mem- 
ory; they sometimes think they hate a commit- 
ment on their account which in reality has al- 
ready been filled or cancelled or perhaps was 
never placed. If under such circumstances your 
broker see the words " to close," he looks up 
your account, but finds nothing of equal amount 
to close out. He then notifies you, and the mis- 
understanding is ironed out. Otherwise you 
might think you have closed a trade and give it 
no futher thought, when in reality you have 
opened a new trade which needs watching or im- 
mediate action. An order "to close/' not other- 



TRADING IN WHEAT 63 

wise marked, is always considered an "open or- 
der" ; that is, it will be kept on the books until 
filled. 

You are advised to keep in touch with an 
adequate news service, not merely because that 
is the news service which deserves your busi- 
ness, but because unless you are a grain spe- 
cialist and devote sufficient time and capital to 
news gathering, you cannot possibly know the 
facts as well as such an organization. Then, 
anyone who made use of that service and did 
know the facts better than yourself, would have 
a big trading advantage over you. When you 
have learned the situation you can devote your 
Wheat-Time to the market itself and balance 
your judgment of future developments with 
your individual temperament and capital. 

"Close Out My Account" is the order you give 
when you wish to stop trading, for the time be- 
ing at least. Your broker immediately "closes" 
all trades on your account; that is, he sells your 
"long" commitments and buys in your "short" 
sales. A few minutes later you can draw your 
balance in cash. 

All orders may be changed at any time. A 
good broker's service meets every emergency, no 
matter how complicated. Switch as often as you 
like. 

It is well to start with a clean slate every once 



64 TRADING IN WHEAT 

in a while. Especially if you are trading in pro- 
visions and stocks, as well as wheat, the variety 
of your old open orders may tax your memory 
and open orders are not cancelled until you give 
instructions to that effect to your broker. Just 
say : "Cancel all orders standing on my account. ,, 
Then meet present conditions with new "buy" 
or "sell" instructions. 

Resting Orders 

Resting Orders are instructions to trade at 
figures away from the current level ; with them 
you can take advantage of coming movements 
without your being present in a brokerage office, 
and even without closely watching quotations. 
If May wheat is offered at 90c, and you think 
that it will probably reach a lower level in a 
few days, you can place a Resting Order to buy 
10,000 bushels at 88c. a bushel. You can now 
go on a hunting trip, if you like, cutting all com- 
munications with your broker, and if the price 
goes as low as 88c, you are certain to get that 
10,000 bushels. 

Should you be "Long" and hold wheat which 
you wish to unload at 92c, you place the Rest- 
ing Order to sell at that figure. Even when 
you are watching the market as closely as is pos- 
sible for the average business man (not profes- 
sional grain dealer or trader), the Resting Or- 



TRADING IN WHEAT 65 

der is the only means by which full advantage 
can be taken of breaks and bulges. Such levels 
are momentary and the distant trader must have 
his order in the broker's hands ahead of the 
event, because the climax of a movement or a 
temporary change of trend cannot be forecast by 
anyone. 

When so placed as to take a possible future 
profit, a Resting Order becomes a Closing Or- 
der. For example, the price of wheat being 
$1.00, you may judge that a small decline is 
probable, but that the fundamental position war- 
rants a subsequent rise of at least 3 points. You 
can then send your broker a Resting Order to 
"Buy 5,000 bu. July wheat at 99, close at $1.02." 
This gives you certainty of catching the 3-point 
profit, if it eventualizes. 

Instead of waiting for a decline, you may 
wish to buy "at the market" and to take advan- 
tage of any further strength, after you have 
taken your first profit. Then your order could 
read as follows : "Buy 5,000 bu. July wheat, take 
two-cent profit, and repeat if market warrants." 

This is not a Discretionary Order. The latter is 
a type of transaction not accepted by the best 
firms, and may be defined as one by which a 
man leaves the making of a trade in the hands 
of his broker, the latter to act entirely accord- 



66 TRADING IN WHEAT 

ing to his opinion. A high-class commission 
house does not care for this responsibility. 

It is, however, not only legitimate, but essen- 
tial to the success of a careful trader, distant 
from his market, that he can so place his or- 
ders as to take advantage of future movements 
whose probability he foresees. Hence you are 
fully justified in ordering your broker to "buy 
if the market looks strong tomorrow/' or "sell 
if the tone is weak," and "repeat if conditions 
remain the same." In the news of the day and 
in official price movements you have a certain 
check on the carrying of your orders. 

Keep just ahead of the crowd by placing your 
Resting Order an eighth or a quarter in advance 
of ordinary trading levels. For example, when 
wheat has had a long rise and is moving through 
$1.17, everyone's thought turns to $1.20 as a pos- 
sible limit to the movement and a good point at 
which to take profits. Put your Resting Order 
to "close at $1.19^," so that although the val- 
ume of sales at $1.20 may force prices down 
more quickly than all the orders at that level 
can be filled, you, by apparently sacrificing a 
quarter of a point, which, however, was never 
really obtainable, have your profit safe. 

You can also sell short by using Resting Or- 
ders, but it is rarely advisable to go short if you 
cannot watch the trade, unless you protect your- 



TRADING IN WHEAT 67 

self with a Stop Loss Order, That is one of the 
most important safeguards for the average trader 
and consists of placing a Resting Order — to Sell, 
just below your purchase price, or — to Buy close 
to, but above the level at which you sold short. 
Thus, if you bought 5,000 bushels of May wheat 
at $1.00, expecting a rise, you might place a 
Stop Loss Order to sell at 99^4 — this would pre- 
vent the market from going more than ^4 of a 
cent against you (as far as your account is con- 
cerned), if your expectation of an upturn 
proved incorrect. If you judge a downward 
movement at hand and sell short at $1.00, the 
Stop Loss Order may be placed at $i.oo£4, and 
in case of a rise your loss is stopped at the lat- 
ter figure. 

Never go beyond reach of your broker's tele- 
phone without protecting all trades by Stop Loss 
Orders. These are always considered "Open" ; 
that is, good till filled or cancelled. 

A Point in the wheat market is one cent, as 
the difference between wheat at $1.00 a bushel 
and at $1.01 a bushel. Each point of price move- 
ment implies a profit or loss of $10 per 1,000 
bushels of wheat. 

When prices are moving swiftly up or down, 
and you already have one or two points' profit, 
the most satisfactory position for your Stop is 
about two cents from the market price. During 



68 TRADING IN WHEAT 

such active trading, intermediate small swings 
of about a cent are frequent, and a Stop ^c. 
away would result in your trade's being closed 
out too soon; a return to the main price direc- 
tion might then show a profit on your original 
trade, but you would no longer be aboard ; hence 
the necessity for more leeway — two points. 



CHAPTER X 

Trading Terms — Necessity for Definite 
Campaign Methods — "Swings," and 
How to Use Them. 

THE Execution of your order is the actual 
making of your purchase or sale in the Pit. 
A broker like a hardware salesman or real 
estate agent asks pay for work and reimburse- 
ment for expenses in proportion to the amount 
of goods or business handled. This percentage 
is called the Commission and amounts to $7.50 
per full lot (5,000 bushels) of Wheat, Corn or 
Oats. On orders for job lots (1,000 bushels) 
the commission is $2.50. 

You, the trader in Grain, pay No Interest 
Charges or other carrying expenses of any kind 
on "Futures" in wheat. However, should you 
choose to buy for Current Delivery, that is, for 
delivery during the present month — as when you 
buy May wheat in May — that grain as soon as 
turned over to you, must be held somewhere. If 
you have no warehouse of your own you must 
pay storage. In practice this is paid to the ele- 
vator company holding the particular parcel now 
standing in your name. Carrying Charges com- 
prise cost of storing, interest and insurance, and 

69 



70 TRADING IN WHEAT 

amount to about 2 cents a bushel a month ; they 
may also be caluculated on a basis of $3.25 a day 
for 5,000 bushels. This expense is avoided by 
selling before the delivery date arrives. 

A Current Delivery may or may not be im- 
mediately delivered, although it must be by the 
last day of the current month. If your buying 
order was filled from a selling order given by 
someone who had previously bought actual 
grain and who wished to unload it, you would 
have to accept it and thereafter pay storage un- 
til you resold or shipped it. If your order was 
met by a short sale, you would be saved the 
carrying charges until the short seller bought-in 
his contract and made delivery. 

Cash Wheat, occasionally also called Spot, is 
wheat sold by sample and grade for immediate 
delivery, as when bought by a mill or for export. 
Cash wheat sometimes sells at from 2 to as much 
as 15 cents above the futures; this is called the 
Cash Premium. It is due to the fact that de- 
livery of future contract wheat is at the seller's 
option during the month for which it has been 
sold, and those who need actual grain imme- 
diately must pay in proportion to the degree of 
scarcity. In years when crops are large and de- 
mand is not equal to supply, a discount prevails 
on actual grain. This is called the Cash Dis- 
count 



TRADING IN WHEAT 71 

Foreign business is mainly in the hands of 
dealers strong enough to buy a whole cargo at 
a time. 

When Your Market Position Is Well Taken 

Ample Margins Are Assurance of 

Eventual Profit 

As you open an account you deposit a sum 
commensurate with the probable volume of your 
trading; this is called the Margin. Each order 
to buy or sell wheat is a business contract (as 
definite as an agreement to purchase a house and 
lot or a suit of clothes) and the other party to 
your contract (represented by his broker, just 
as your broker represents you) demands assur- 
ance that the trade will be carried out. The 
margins of the two traders, deposited with their 
respective brokers, give such assurance. The 
brokers can thereupon guarantee the transaction 
to each other. In the pit this is understood, and 
it is accomplished automatically by the account- 
ing department of both firms. 

During ordinary markets, when the price of 
wheat is $1.00 a bushel or less, the margin re- 
quired is 5 cents a bushel handled, that is $250 
for each 5,000 bushels, $50 for 1,000 bushels. 

On Corn and Oats the minimum deposit is 3 
cents per bushel, equal to $150 for each 5,000 
bushels. 



72 



TRADING IN WHEAT 













— 
















T 










































I 


s 


S 


s 





? 


*U 


5 
5 


N 


f- 


m 





if) 




§ 


$ 


5 


CC 

































V | 




















■ 


































































^<7 


















































J 


-'(9 












| 






































%j] 


Sny 
















-a- 


.*« 


'/ab {"* 






'uipo. 


a 


O.K' 


- 












5 


Jr/+ 




















1 














J 


d H \ 




































X-i 
















V t? 


*A 1 






































K 


) 










2 

C 




/ 


3 


^<7 




















_j_ 






















V 


*? 




















1 
















s 








1 


t 


tey 








~~ 1 








J L _ 
















1 








a 






s 


9U 


Tf 






















4- 




1 ' i : i 






c 


) 

c 

J- 




J 


* 


*i i i i ; i 




_ 








< 




H 


\* 


v, , 




| | I ! I 1 | 


! 1 i 




— 












1 L_J 




i i '- ! . i 1 


i ! i 








s 




Z 5 


)- 

> - 

) 

J 






H 


«>\ \ 




i i , . i i i i i 








j 






h 


& 


n v 








Nl 5 


•m q.; w o 

-I -| fc' 


1 


i o 


fc 


* 




5 


?i/ 


y\ 












W^ 






< .| X| X 


1 




\jk 


0} 








V 


* 








i 






























9 


S 















































»G 










































ui i 


J 

f - 

I 
) 






J 


-^ 












































tv 


■b\ny 




























— 


, 












Ok 


Ay 




f 


r& 


p 


*o 


,6 


/ 


w 


!/' 


«? 


PC 


i— 


0* 


A" 


/i', 


<>c 


/*« 


N 


fr 




q: n 




! 


■j 


ty 










































a V 




n 


<7 


^ 










































3 








3 


■* 


















































t~v 


JO 










































H 








5 


»* 


















Si 


'v 


ti 


s 












"o 


M 







< 


[ 

J 

1 

r 




£ 


SB 


*!f 


















•{* 
















B 


33 


c: 




L 

3 












3 


4 










































> 
c 




n 


"l 


rx/ 














































3 


»<7 














































4 


»0 










































2 






I 


t 


"// 


























































51 


SJ 


"i'| 




























""I 






































efcl 


















































~^ 


P? 


•y 


















































:^ 


' 3 


*<7 


















q 


































i 


; 


ta 


















«! 
























,'" 


















* 


£ 


"■if 


















1 




































;-i 


"£ 


















( 
























































5 


§ 





kr 





5 


\ 


<? 


s 


h 


§ 




































^ 


■" 




"* 


s 




* 













TRADING IN WHEAT 73 

A margin is Kept Good by being maintained 
at the same distance from the market level ; when 
an account is margined for 5 points down from 
$.98 a bushel and the quotation drops 3 points 
to $.95, then an additional 3 cents a bushel is de- 
posited to "keep the margin good" for 5 points 
down to $.90. 

When wheat sells above the dollar level, it is 
customary for brokers to insist on a margin that 
offers a fair degree of safety; the customary 
amount in that case is 10 cents. 

The price level to which a speculative account 
is margined is called the Exhaust Point. When 
it is approached, that is, if the market moves 
against the trader by about 2^/2 cents of a 5 cent 
margin or, with wheat at $1 or higher, by 5 
cents of a 10-cent margin, the broker issues a 
Margin Call or request for additional margin. 

It is understood between client and broker that 
the latter reserves the right to close all trans- 
actions whenever funds in hand are insufficient 
to protect holdings. 

In widely fluctuating markets a change of 
more than 5 cents during the day must be al- 
lowed for. This is apt to be so rapid that your 
broker lacks time to notify you or you may not 
be in a position at the moment to increase your 
marginal deposit ; you would in such a case be 
sold out and, likely as not would subsequently 



74 TRADING IN WHEAT 

see prices remount to a figure which would have 
netted you a handsome profit. It is easy to see 
after such an experience that ample margins are 
the best assurance of profits — the rare trader is 
he who realizes this factor before he is caught 
for an expensive practical lesson. 

Wheat investors who plan their market cam- 
paign in some such manner avoid the danger of 
heavy loss no matter how high, low or fast quo- 
tations fly. A majority of losses are due to 
Overtrading — to expectations so great that they 
are unfair to the capital used as well as to the 
market, and will swamp the speculator sooner 
or later. 

Never take a risk that spoils your beefsteak 
or your pillow. Such methods may truly be 
called "speculation" in the unhappy sense of the 
word. 

Conservatism is particularly advisable in en- 
thusiastic Bull movements. At such times the 
inexperienced public is penalized by wild dips 
and rallies which regularly wipe out an army of 
small speculators who neglect to obtain the ad- 
vice of a good broker. 

Definite Campaign Essential 

A definite campaign method is essential to con- 
tinued success in the market. Traders of long 
experience develop their methods instinctively 



TRADING IN WHEAT 75 

and work in every variety of market according 
to rules of which they may not be conscious. 
The most successful wheat speculators probably 
feel automatically what action is right at any 
given moment; their logic is so rapid that it 
scarcely seems to require sufficient time to be 
called thought. 

A beginner had best outline his procedure 
carefully, to suit his individual character and 
capital. 

A good method is to divide your capital into 
ten equal parts each of which, safeguarded by a 
stop-loss, will allow for a complete trade. Then 
you can lose several times and still maintain 
your balance, with your broker, intact. In spe- 
cial circumstances, such as catching a wide and 
steady movement from beginning to end, a 
single one of your Trades can easily make up for 
a dozen losses. 

Gaining Experience 

Such a method gives beginners a chance to 
gain experience, for no man can expect to come 
into a new business and judge every eventuality 
correctly. The greatest financiers, statesmen and 
generals allow for an element of adverse chance. 
This is only prudent. By the time that your ac- 
count shows that you can steadily make small 
gains in the wheat market, you will probably de- 



76 TRADING IN WHEAT 

velop a more or less individual method of your 
own. 

A CHART is a Motion-Picture Record of 
Financial History. It should not be used as a 
direct means of foretelling future movements, 
although it has been prostituted to such purpose 
by the quacks of a dead market-generation. 

The wheat market moves nominally by 
eighths, but in practice by sixteenths. The 
smaller fraction would be cumbersome to quote, 
hence bids and offers are called in eighths — 
"Split" that is, halved. The bid and asked 
prices are an eighth part, as "99% bid $1.00 
asked." If the last sale was at $1.00 and a pit 
trader calls out "Buy 10,000 99% Split," he 
means that he will take 5,000 bushels at 99^ 
and 5,000 at $1.00, practically 10,000 bu. at 
99 15/16. Should the trade say, "Sell 10,000, 
$1.00 Split," he is offering to split a 10,000 bu. 
order for an average consideration of $1.00 1/16 
per bushel. 

The pit transaction is made by spoken or 
shouted word, no matter how great the turmoil 
and noise in the exchange room. A motion of 
the hand toward or from the person speaking 
indicates his position as buyer or seller. The 
trade may then be confirmed by sign. 



TRADING IN WHEAT 77 

Sign Language 

A sign language is also used in reporting prices 
and orders from the pit to persons at some dis- 
tance. This system is practically a deaf and 
dumb alphabet made up of various positions and 
movements of fingers, hands and arms. The 
hand turned up means — I bid; turned down — I 
offer; one finger expresses a difference of }i 
above the whole number of the last sale; each 
additional finger — another eighth ; closed fist even 
cent; arm swung forward and down — Sold, etc. 

Trading Expressions 

Some of the expressions current among 
traders, to denote various kinds of fluctuations, 
do not lend themselves to exact definition, but 
it may generally be said that a Break is a rather 
sharp down-turn of prices for from two to five 
points; at its extreme this may be called a 
Slump. A Bulge is an upturn within similar 
limits. This, however, attracts more attention 
and business, point for point, than a similar 
Break and is, at about four points, often mis- 
named a Boom. The latter word is properly re- 
served for a continued rise of 15 points or more. 



CHAPTER XI 

Technical Terms — Scale Trading — 
Pyramiding and Indemnities. 

WHEN a movement extends beyond 
five points it is likely to be compli- 
cated by smaller contrary currents, 
and may develop sufficient strength to become a 
dominant Trend; then we have a Bull or Bear 
Market. 

Recession, Dip and Decline are self-explana- 
tory and are more commonly used in speaking 
of a movement of less than two points. Modi- 
fying adjectives, such as large, small, little, big, 
etc., often change the scope of market terms. 

A Reaction is most commonly understood to 
be a downward movement following an upturn ; 
quite properly though more rarely, an upward 
movement after a decline is similarly termed a 
Reaction. The popular term for an upturn after 
a falling market is Rally. 

Professional wheat exchange operators who 
have long experience, ample capital and con- 
stant, close connection with the market, can 
make a steady income by Scalping quotations. 
They catch the small fluctuations ranging over 
a point or two, and as these are frequent, the 

78 



TRADING IN WHEAT 79 

average day's result is satisfactory to the skilful 
scalper. 

Persons not so conveniently situated cannot 
afford to pay attention to these minor price 
movements, because commissions on frequent 
trading become burdensome if not accompanied 
by that steady success whose prime requisite is 
constant attention. Hence the business-man 
whose time is mainly devoted to affairs outside 
of the exchange will find it most profitable to 
study the wider fluctuations. 

These may be roughly divided into Interme- 
diate Swings of from 3 to 10 points, and Long 
Swings — from 10 to 40 points and more. If you 
desire lively opportunities which constantly 
change and recur, and you are ready to give at 
least half an hour a day to Wheat Work, the 
Intermediate swings can be made as profitable 
as they are interesting. Wheat, like chess, re- 
quires Brains and Application, but to those who 
have once mastered them they are the finest 
games in the world. The fundamental rules of 
both are simple after the first two hours of study. 

A glance at the diagram of price movements 
on page 72 will give an idea of the many 
chances to catch Intermediate Swings, opened in 
the course of a year. The use of stop-loss or- 
ders as suggested in a previous chapter, will en- 
able any careful trader to limit losses to incon- 



80 TRADING IN WHEAT 

sequential amounts (provided no trade is toe 
large for his capital). Resting orders properly 
distributed will permit you to partake of each 
favorable trend. 

The last type of campaign which may be ad- 
vised, aims at wheat purchases when the price 
of the grain is very low as compared with the 
average of several years, or at sales when the 
level of quotations is immoderately high. This 
method rests on what is probably the first prin- 
ciple we ever learned: "What goes up must come 
down," and on its opposite (a certainty in wheat 
and corn) — what is down will go up. 

The difficulty— "When is the price up, or 
down?" can be answered by a review of past 
prices and present conditions; the question: 
"When are prices at the very top, or at the low- 
est bottom ?" is never settled till the movement is 
over. 

Scale Trading 
Yet even high and low points can be approxi- 
mated by Scale Trading. This plan presupposes 
sufficient capital, and experienced judgment; 
both terms are relative. If you deal in small 
lots, a comparatively small reserve fund will 
prove an adequate safeguard— and a beginner's 
judgment should in all cases be reinforced by 
sound advice, if possible, from someone inter- 
ested in your financial welfare. 



TRADING IN WHEAT 81 

The Long-Swing trader who sees May Wheat 
quoted at $.90 knows that this is within six 
points of the lowest level (84^) touched in re- 
cent years. So he divides his active trading cap- 
ital into four parts, intending to buy equal 
amounts "on the scale down" at 90, 88, 86, and 
84 cents, leaving enough money for each trade 
to margin it down to 82. He should have some 
other form of negotiable funds in his safe de- 
posit box so that in case of an unprecedented 
drop, he can support his trades even if he must 
borrow money and pay interest, because evident- 
ly it is just such times of extreme depression that 
afford the cheapest purchases and possibility of 
longest upswing. 

When quotations finally move in a favorable 
direction, the Average of your four purchase 
prices is the point at which your profits begin 
and they may be permitted to pile up until the 
delivery month arrives. A resting order to sell 
kept just below the mounting quotations, would 
protect you against any severe reaction. 

Should your first order have caught the very 
bottom of the decline, you reverse above tactics 
and buy on a Scale Up from 90, perhaps at one- 
point intervals after the first, as — 92, 93, 94. 
This soon gives you absolute certainly of profit 
if a top loss is placed close under the market. 
Your margin in that case need not be so large 



82 TRADING IN WHEAT 

as for the scale-down campaign, and you can 
safely increase the size of your commitments. 

All questions of margin, stops, and use of 
different trading methods are relative and de- 
pend on circumstances. No rules can be formu- 
lated to cover all cases ; each trader must by 
practical experience sound his own limitations 
and ability. 

Having decided on a course for your cam- 
paign, make every effort to keep your mind 
from being biased by hopes and fears. The 
reason why some men who know the markets 
thoroughly nevertheless stay poor, is that after 
they have formed a judgment, they cannot stick 
to it. No matter how long they are of wheat 
or stocks they are always short of Will Power, 
and break every resolution as soon as rumor or 
public sentiment run contrary to their first con- 
victions. A Rudderless Ship Makes a Poor 
Grain Carrier. 

Your investigation of conditions being thor- 
ough, your logic carefully built up, and your 
plan ratified by competent advice, take a firm 
grip, as bull or bear and Stick! 

When you study yourself, your bank account 
and the market to find a method of trading, do 
not get caught by any so-called System of the 
infallible type. An idea that the market can be 
forecast by mathematical means, by charts or 



TRADING IN WHEAT 83 

hocus-pocus of any variety is certain to bring 
you to grief. 

A "Sure Thing" in the wheat market is the 
sign of faker or fool. The most powerful 
manipulator can make no law for price move- 
ments ; the most profound mathematician can 
find no law for them. Every trade you make 
must stand on the merits of your judgment at 
the instant of placing your order. Of course 
you may have prepared the basis for that judg- 
ment at the beginning of the campaign. 

Pyramiding 

When a trader has a profit and does not cash 
it in, but leaves it standing on his account with- 
out safeguarding it with a stop loss, this is called 
a Paper Profit. It may be used as the first layer 
of an inverted Pyramid by employing it to mar- 
gin a second order in the same market position 
as the first. Should prices continue to move in 
the same direction the second trade will show a 
profit and that of the first trade will be increased. 

The sum of these two profits may now be 
used to margin a third trade, and so on until 
either the trader is satisfied and converts all these 
paper profits into cash, or the market turns aginst 
him sufficiently to topple over the whole struc- 
ture. This method offers large possibilities of 
gain, but the risk is commensurate and makes 



8 4 



TRADING IN WHEAT 




TRADING IN WHEAT 85 

any series of such ventures a practically certain 
loss. 

Indemnities 

These are also known as Bids and Offers, and 
are a form of insurance against loss on ordinary 
trades; the rate which must be paid for this in- 
surance is, however, so high that its purchase 
becomes profitable only in very active markets 
when fluctuations are apt to be wide. Selling in- 
demnities is properly the work of professionals 
who can closely watch the market and who pos- 
sess ample capital to meet an occasional heavy 
reverse. 

A trader who is long of 5,000 bushels Decem- 
ber wheat at $1.00 (the market closing at the 
same price) may buy a bid at perhaps 98 for 
the next day, paying $1.00, plus 5 cents broker- 
age, per thousand bushels. 

The cost of insurance on a full lot of 5,000 
bushels is therefore $5.25. If December wheat 
drops to 98 cents during the next market session, 
the bid becomes "good" and the indemnity auto- 
matically becomes operative, that is, the trader 
sells the 5,000 bushels December wheat to the 
Indemnity seller at 98. No matter how much 
lower the December wheat quotation falls dur- 
ing the session the indemnity purchaser, having 
sold his wheat at 98, is reimbursed for any drop 



86 TRADING IN WHEAT 

below 98 — the purchase quotation of his indem- 
nity. 

When a trader is Short, he can buy Offers and 
sell Bids ; the $5.00 payment on a full lot less 
25 cents brokerage nets the seller $4.75 per 5,000 
bushels. In all cases the actual transaction, made 
when bid or offer becomes good, follows the 
regular routine of the pit and is subject to the 
ordinary commission of $7.50 per 5,000 bushels. 
These daily contracts are quite active. 

Somewhat more limited are dealings in weekly 
indemnities. They run to the close of the last 
business day of the week for which they are 
bought and are contracted as early as Tuesday 
of the previous week. Their cost is $6.25 for a 
full lot, but the quotation at which they become 
good is usually quite distant from that of wheat 
in the pit, seven or eight cents being common. 
When wheat is $1.00, the weekly indemnity may 
be quoted at 93. The buyer in this case has no 
orotection between $1.00 and 93 cents. 



CHAPTER XII 

"Spreads" — Forming Judgments of 
Price Movements — Routine of the 
Board Room— Wheat Calendar — Mar- 
ket Pointers. 

THE price of wheat in different markets 
usually differs by a fraction of a point or 
more : This is called the Spread. Buying 
in one city and selling in another, to take ad- 
vantage of the price difference, is known as deal- 
ing in Spreads, and is a form of trading prop- 
erly restricted to specialists who possess superior 
connections in widely separated markets. The 
business is handicapped by doubled brokerage 
commission because in practice a purchase and 
sale must be made in both cities even when the 
transaction is in cash grain. Shipping costs 
would become too heavy. 

Another form of spread is that between dif- 
ferent delivery months in the same market; this 
is also called a Straddle. For example, during 
December the price for May futures may be $1.25 
a bushel and for July, $1.15, because it is prob- 
able that by the later month the new harvest will 
fill demand more readily. However, at a dis- 
tance of six months it is not practicable to esti- 

87 . 



88 



TRADING IN WHEAT 



mate harvest results with sufficient accuracy to 
warrant straddling, only if the spread continues 
inviting until a "nearer" month, say March, a 
far-seeing trader might judge that May wheat 
may be a sale while the July is a good purchase, 
or vice versa. 

While this form of spread is not as difficult to 
handle as that between distant cities, it never- 
theless requires experience and ability of an un- 
usual degree and can not be generally recom- 
mended. 

To Form Your Judgment of Future Price 
Movements 

WATCH. 

United States 
Foreign 

Temperature 
Moisture 

Smut ; 

Rust; 

Insects. 

A small factor ; farm-labor short- 
age stories are usually fakes 



Acreage 
Weather 

Pests 

Labor 



TRADING IN WHEAT 89 

_ ( Growing Crop 

On Farm < ~ 

( Reserves 

1 ( Line ) _ 

Supply In Elevators<| Terminal | Receipts 

(Rail — available cars 
In Transit < Ship — available ocean 
( tonnage 



Demand 



Home V Study public and private 
Foreignj market reports 



Surplus < Ask your broker's opinion 



The Pit 



( Dir 

Prices < 
( Sp( 



Direction of movement 
Speed 

Activity, indicating volume; 

Personal Leaders. 



Sentiment < 



Tickers ;* 

Your Broker's Letters; 

Newspapers ; 

Gossip. 

* There's often a big story between the figures of the 
quotation tape, but everybody doesn't know its alphabet. 



90 TRADING IN Willi. T 

When the origin of heavy orders can be 
traced, the name of the influential trader is a 
valuable index ; he may know something of 
which the crowd is ignorant. 

Weekly Routine of the Board Room 

Over the week-end many traders give some; 
time to the reading of market letters and reviews, 
they sum up the latest statistics and consider 
public sentiment. As a result MONDAY morn- 
ing's orders represent the revised view of a 
large market element, and the impetus which 
these orders give to prices must be reckoned 
with. About ii A. M. on the first day of the 
week the Chicago Board of Trade gives out its 
official estimate of the United States Visible Sup- 
ply. The figures cover wheat at primary centers 
and shipping points between the Lakes and the 
Gulf. 

On TUESDAY, Bradstreet publishes figures 
on the U. S. Visible, including Pacific Coast 
points and some of the larger interior elevators. 

FRIDAY — Exports for the preceding week 
are published by Bradstreet. 

On SATURDAY total Primary Receipts are 
summed up and given out on the news ticker. 
Toward the close of this session an evening-up 
movement is usually noticeable. Its resultant ef- 
fect is variable. If the market has been rising 



TRADING IN WHEAT 91 

on what appears to be a temporary swing, profit- 
taking will predominate. On the contrary, if the 
upturn has been sufficiently spectacular to at- 
tract the public, with prospect of even greater 
volume of buying at the next session, shorts are 
likely to cover their contracts and their pur- 
chases may push the price up another cent or 
more. Such a flurry is likely to happen par- 
ticularly at the close of any other day as well 
as Saturday. When prices have been sinking for 
some time, shorts who have a profit often prefer 
to take it rather than risk any change of trend 
over a coming holiday. 

Three-Day Price Movements 

A considerable number of traders believe that 
the majority of market swings consume three- 
day periods; hence they are likely to close out 
or switch at the end of the third day of any 
movement. Exceptions to this rule are, however, 
so frequent that its observance is suited to the 
thought habits of a small minority. 

Herein lies the fundamental lesson of Suc- 
cess in chosing a trading method: "Suit Your- 
self." As no two men look alike, so the brain 
habit of each is different. Possible combinations 
of action in the wheat market are infinite; it re- 
mains for every trader to study his fund both 
of money and courage, the rapidity of price 



92 TRADING IN WHEAT 

fluctuations and the speed of his own cerebral 
functions. It is only when he has learned to 
match his own orders against the business in the 
pit and to switch position as easily as the board 
boy chalks an eighth up or down, that the Grain 
Investor has found himself. 

Wheat Calendar 

January 

Argentine Harvest completed; shipments begin 
and wheat is likely to be a sale. 

Australasian and Chilean Harvest. 

Primary movement culminates. 

Government report on acreage and condition of 
Winter wheat 
February 

Alternate thawing and freezing a danger. Har- 
vest in upper Egypt and Southern India. 
March 

Frequently a month of falling prices because sales 
of farm reserve wheat are heavy. 

Government report on supply of wheat in farmers' 
hands and quality of crop. 

Government estimate of worlds crop. 

Harvests continue in India and Egypt 
April 

U. S. crop making season begins. 

May wheat likely to reach high point between this 
time and July. 

Government report on condition of Winter wheat. 

Hessian fly may appear. 

The amount of contract grade wheat available at 
primary markets is a valuable index of delivery con- 
ditions for the first of next month. 

Navigation reopens on North American lakes and 
canals. 



TRADING IN WHEAT 93 

Harvests in lower Egypt, Asia Minor, Persia, In- 
dia, Mexico, Cuba. 
May 

Continuation of upward price trend for May wheat 
is probable during this month. 

Avoid going short of delivery months. 

Government report on condition of winter wheat. 

Montreal and St. Petersburg navigation opens. 

Harvest in Texas and Florida, Central Asia, China, 
Japan, Algeria and Morocco. 
June 

Wheat market likely to be dominated by bears. 

Government report on acreage and condition of 
Winter and Spring wheat. 

First Winter wheat arrives at Chicago. 

Drought a danger. 

Harvest in California, Louisiana, Mississippi, Geor- 
gia, Carolinas, Tennessee, Virginia, Kentucky, Kan- 
sas, Arkansas, Utah, Missouri, Southern France, 
Spain, Portugal, Greece, Italy. 

July 

Wheat year begins, i. e., old crop becomes history, 
new crop is today's life. 

Rust in Northwest due to excessive rain. 

First Winter wheat reaches Southwestern market. 

First Spring wheat arrives at Chicago. 

Government report on average condition of Win- 
ter and Spring wheat, and quantity of wheat on 
farms. 

Harvest in Nebraska, Minnesota, Wisconsin, Colo- 
rado, Oregon, Washington, Iowa, Illinois, Indiana, 
Michigan, Ohio, New York, New England, Canada, 
England, Germany, France, Austria, Roumania, Bul- 
garia, Southern Russia. 
August 

Forestall coming Spring wheat crop's effect. 

Government report on average condition of Spring 
wheat. 



94 TRADING IN WHEAT 

Argentine seeding begins. 

Harvest in Canada, Great Britain, Belgium, Hol- 
land, Denmark, Poland. 

September 

Expect autumn low point for May wheat, but this 
may not come until November. 

Spring wheat reaches northern markets. 

First killing frosts may appear. 

American terminal elevators fill. 

Winter wheat seeding begins. 

Sowing in India. 

Government report on average condition of Spring 
wheat. 

Harvest in north of Russia, Scotland, Sweden, 
Norway. 

October 

An active month for trading on both bear and 
bull swings. 

Government report on average yield per acre. 

Heavy weekly exports begin. 

Growing season over — watch handling of crop. 

Argentine crop being made. 

Total visible approaches high point unless old 
stock were very low, in which case figures of vis- 
ible, in spite of heavy receipts, can not gain on 
milling consumption. 

Harvest in northern Russia and Norway ends. 
November 

Prices usually show gain on September market 
quotations. 

Winter wheat seeding ends and State reports 
thereon come out. 

St Petersburg and Sea of Azof! navigation closes. 

Harvest begins in Argentina, Peru and South 
Africa. 
December 

About the 15th comes final government estimate 



TRADING IN WHEAT 95 

on all grain for past year; about the 17th, first esti- 
mate of new crop acreage and condition. 

Navigation, Montreal and North American lakes 
closes; Russian Baltic ports may close. 

Wheat reserved by farmers to this date may be 
damaged article and can then not be counted among 
invisible supplies. Harvest in Argentina and Bur- 
mah. 

Watch the Market Leaders to Become One 

The day's wheat news is usually sprinkled with 
names of men and firms whose activity is recog- 
nized as possessing more or less influence on 
prices. A knowledge of these human factors 
can never be complete for they are constantly 
changing, yet some acquaintance with the mar- 
ket leaders is essential to a comprehension of 
the ticker's story. 

This does not imply that a small trader should 
make a practice of Tailing On — blindly follow- 
ing the lead of heavy commitments which ac- 
cording to rumor indicate the judgment of big 
interests. The latter will more likely hide their 
movements as much as possible until such time 
as they want the public to Think it has learned 
something. The smaller trader who wishes to 
grow, does his own thinking, estimating general 
news at its hidden, not obvious, value ; he makes 
commitments which take advantage of widely 
published movements without necessarily going 
in the same direction. 



96 TRADING IN WHEAT 

Study the names of influential traders and 
firms as these appear in daily newspaper finan- 
cial columns. When the wheat business becomes 
Your business and you learn to understand its 
every feature, you are on the road to wheat suc- 
cess. 

The End 



The Most Important Factor in Trading 
or Investing is a Knowledge of 

The Trend 



It is better to know which way the general 
market is likely to swing than to know earn- 
ings, dividends or fundamentals. 

The tape gives very definite indications as 
to the immediate future. 

Our Trend Letter, written from the tape, 
contains this information. 

Issued every Thursday with additional special letters 
whenever a change occurs. Condensed "collect" 
night letter given by wire to distant sub- 
scribers without additional charge. 

Write TODAY for samples, terms and record of 
results. 

The MAGAZINE OF WALL STREET 

42 Broadway, New York City 



Other Publications 



What an Investor Ought to Enow 

By Frederiok Lownhaupt 

Cloth, 160 pp., $1.06 postpaid 

Investing For Profit 

By G. C. Seidell 

Cloth, 170 pp., with diagrams, $1.06 postpaid 

The Business of Trading in Stocks 

By "B" 

Cloth, Pocket Size, $2.06 postpaid 

14 Methods of Operating in the Stock 
Market 

A Collection of Practical Ideas 
Leather, $1.04 postpaid 

How to Read the Financial Page 

By Scribner Browne 
Leather, Pocket Size, Price, $1.06 postpaid 

Studies in Tape Reading 

By Rollo Tape 

Leather, 1S9 pp., with tables and 

diagrams, $3.06 postpaid 

The MAGAZINE OF WALL STREET 

42 Broadway, New York City 



